Pegasus Company, a telephone service and supply company, has just completed its fourth year of operations. The
Question:
Information is requested as to the effect that an annual provision of 34% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
Instructions
1. Assemble the desired data, using the following column headings:
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 34% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?Explain.
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Related Book For
Accounting
ISBN: 978-0324401844
22nd Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac
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